Colgate-Palmolive (CL) represents one of the most formidable consumer-products companies in the world and is the largest maker of toothpaste. Yet its earnings have hit a bump, thanks to soaring commodity prices and weak economies in developed countries.
The company has negotiated turbulence before, all over the world given its global reach. And it has always come out a winner. In times of inflation, Colgate Palmolive finds a way to cut costs.
So, while the stock is unlikely to post sharp gains in the near term, it still represents an attractive possibility for long-term investors.
On the surface, earnings looked good in the first quarter. Net income totaled $576 million, up 61 percent from $357 million a year earlier. But last year’s figure includes a $271 million charge related to the company’s activity in Venezuela. Excluding that charge, profit dropped 8 percent from last year. On the plus side, sales rose 4 percent to $3.99 billion.
Colgate-Palmolive’s gross profit margin slid to 58.4 percent in the first quarter from 59.2 percent from a year earlier, thanks to the surge in commodity prices. The company said that level is unlikely to change much for the rest of the year, implying a dip for 2011 as a whole.
Colgate-Palmolive will adjust. “We anticipate that at least a portion of the commodity-cost pressure will be offset by cost savings elsewhere and by price increases,” writes Loran Braverman, an analyst at Standard & Poor’s.
Positive news overseas
First-quarter sales fell 4.6 percent in North America, yet they rose 9 percent in Latin America and 11.4 percent in the company’s combined Asia-Africa region.
“We expect the company to continue to invest in research & development and marketing, with more resources to be allocated to faster-growing markets,” Braverman writes.
“More than 60 percent of CL's sales come from outside the U.S. Looking ahead, especially in less mature international markets, we believe that CL will have opportunities to benefit from rising incomes and changing lifestyles.”
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